Buffett raises bet against dollar

[dArKeR]

BLOOMBERG
Tuesday, May 04, 2004,Page 12

Billionaire Warren Buffett is increasing his bet against the US dollar and seeking acquisitions because he sees no bargains in US stocks and wants to "rapidly deploy" Berkshire Hathaway Inc's US$36 billion in cash.

"Our hope is we can deploy the money in businesses that are just as good as the ones we have," Buffett, 73, told a crowd of 19,500 people this weekend at Berkshire's annual shareholder meeting near its headquarters in Omaha, Nebraska. "We think the odds are good that we will."

Buffett, Berkshire's chairman, said the US Federal Reserve may be keeping interest rates too low and the trade deficit is swelling, hurting the dollar even as the US economy expands.

http://www.taipeitimes.com/News/worldbiz/archives/2004/05/04/2003154121

[tritsofme]

1. Obviously Buffet knows a lot more about these things

than anybody sitting over here.

But won't the prospect and the act of interest rate hikes in the future send the dollar soaring?

[oblivious]

3. It's an indication of how bad things are...

...raising rates before the election like this.

nothing can help the dollar now, and higher interest rates will hurt the housing and stock markets.

Perfect storm approaching. August to December at the latest.

[tritsofme]

5. Then why has the dollar rallied 10-15% from its lows

in Q1 of this year, and remained relatively stable there?

[oblivious]

8. temporary reprieve because of massive "good news"

It never follows a straight line, but it's still down over 30% against the Euro in about two years. There is no reason to expect the fall be halted long. I repeat...perfect storm approaching. Scary. Too scary to imagine. I understand why the press doesn't want to talk much about it. Self-fulfilling prophecy and all that, but more and more powerful financial figures are sounding the warning, so no one can say we weren't warned.

[tritsofme]

10. But wouldn't you say its off 30%

from artificial highs?

[Turley]

17. Can you say that in English?

What "Perfect Storm" are you talking about? Or do you even know what you're talking about?

Sorry, but your style makes you sound like some kind of voodoo witch-doctor. Care to put any meat on the bone?

[oblivious]

21. No need to get snippy about it

"Perfect storm" voodoo? Huh? It's become a catchphrase it's been used so much in financial publications in the past two years.

The ingredients:

1. rising oil prices

2. rising trade deficit

3. rising Federal budget deficit

4. 2 and 3 leading to rising US debt

5. rising interest rates - expected on Thursday - indicating there is not enough foreign money coming in to cover the current account deficit - if there is no rise, I say the dollar will start falling again - if a small hike isn't enough to bring the money in, rates must go up or the dollar must continue its fall.

6. falling dollar -- up a bit recently, but still down almost 30% against the Euro over the last two years, and see #5 -- headed lower unless interest rates are pegged high enough to attract enough foreign capital.

7. rising and risky federally subsidised mortgage debt

8. real estate bubble

9. rising personal debt

10. Huge derivatives held by US banks - financial WMDs to use Warren Buffet's term that could explode with rising interest rates

and so on

[ozone_man]

22. The debt bomb precipitated

by rising interest rates required to keep creditors buying our national debt. Real estate is starting to turn down and the home equity loans are drying up. I know Buffet is a very smart investor, but I'm not so sure the dollar will collapse. Might go into deflation instead. What is gold doing? Going down I think, and that does not look like inflation to me.

Real Estate Index

[jmcgowanjm]

23. Gold will not drop if copper/soy/crude does not drop

If gold drops, we have deflation.

[madrchsod]

9. higher interest rates will

kill housing,auto`s,and re mortgages for cash. that in turn will stall recovery..higher interest rates will help sell our debt -deflation- to the rest of the world-if there are any buyers ..it`s a perfect storm alright, and we are all on board the Andrea Gale.....

[tritsofme]

11. Moving rates up slightly from historic lows

isn't going to cause the end of world.

[Tellurian]

4. Seems like Buffet's...

braggadocio is geared to stimulating the salivation of certain Republicans. O8)

[tritsofme]

6. And thats a more than noble act,

and although $35 billion is an awful lot of money, will it really have that big of an impact on the dolllar overall?

[Tellurian]

7. heh..

If $35B was dumped into the money exchange in one drop. I think it would rock the dollar pretty significantly for a few weeks.

[Art_from_Ark]

12. $35 B might be a significant amount of money

but it's a fraction of the $500 billion or so that Japan has procured to intervene, if necessary, in the currency markets this year.

Then there's the other big Asian currency player, China. Since China's yuan is tied to the dollar, what would its reaction be to a weakening dollar?

[Tellurian]

13. back to wooden chopsticks?

Just kidding..

Invest in Euros.

[Art_from_Ark]

14. The hot currency in Japan right now is the Aussie dollar

I have no idea why, but it might have something to do with the 4.5% interest. Or maybe it's because Australians are working so hard these days :shrug:

At any rate, the euro crashed against the yen during the past month, going from a high of 139 yen/euro to a low of 126, before rebounding to its current 132 yen/euro. It seems to be on an upward trend, but I don't think it has much more room for upward mobility at the present time, especially considering the service charges that are involved in getting into euros.

[Tellurian]

20. Hey, thanks for the info..

Yes, I felt the sting of the brokerage fees when traveling overseas last spring. Little did I know, the credit card was the best way to avoid paying high brokerage fees converting the $$ to Euros.

This is an intriguing thread. Perhaps a Money thread could be started in the GD folder. Is there a club or game akin to Monopoly, where virtual money is used to play and learn, "Trading Currency on the Virtual Exchange"?

[ozymandius]

16. China has just spelled its strategy to counter a weakening dollar.

The strategy includes loosening the yuan from the dollar. The yuan's value as pegged to the dollar will be replaced with its value determined by a basket of currencies. China has a fiscal crunch all their own at the moment due to rising prices of natural resources such as steel. The central government has just implemented steps to reign in fiscal irresponsibility from the overheated economy. The first step they have taken is the issuance of an edict for the eleven biggest banks: stop lending money for any reason.

When the news of this broke last week, we saw a steep decline in American securities. Small wonder, though: China not only has huge trade imbalances with the US, they also contribute mightily to the funding of our national debt through the purchase of bonds.

[Turley]

15. This is silly

1) Buffet is only talking about marginally increasing his $12Bn in FX positions.

2) Even if he could throw $35Bn at the mkt and even if he were stupid enough to do it in one go, the rest of the mkt would get wind of it and bet against him in a big way.

3) BTW, $35Bn is maybe 1/10 of 1% of two weeks trading volume. Warren Buffet isn't nearly big enough to move $/€ by himself. Nobody is.

[K-W]

2. deleted

[JCMach1]

18. Not just a dollar play here... a good part of the world's economy

is booming right now...

Buffet knows the reality, the U.S. is stagnant...

The GDP figures do not represent the reality on the ground and do not represent real gains for the economy.

[Turley]

19. You're bucking the trend pretty hard

Pretty clearly the conventional wisdom among economists and market analysts is that the U.S. is the engine of growth in this recovery with GDP growth rates above Japan, South America, Canada & Mexico, and way, way above the EU. The only areas of the World with higher growth rates are China and other parts of Asia which are in a bubble economy.

Just out of curiosity, is there something you know that the combined forces of the investment community don't? I'd like to get my bets in early, please.

[jmcgowanjm]

24. Supply demand/Demand supply

Always play against CW.

Ex.-If all say that % rates are going higher, then all the
money has been bet on % rates going higher.

[President Jesus]

25. Buffett's campaign contributions

http://www.newsmeat.com/fec/bystate_detail.php?city=Omaha&st=NE&last=Buffett&first=Warren

[emad]

26. Warren Buffet sat on his tuffet, eating his words and pay....

along came the dollar that made him holler

and gambled his billions away.....